This post as tangentially related to leveymg's most excellent recent diary "Larger CIA and DoD Privatization Scandal Emerging from Walter Reed Story, US Attorneys Firing" which centers around hedge fund giant Cerberus. If you haven't had a chance to check that diary out, be sure to do so because it is a very worthwhile read. In this diary, we're going to delve into the intertwined, and quite convoluted scandals involving, among st other things: - Alleged bribes to Ariel Sharon by Martin Schlaff, an Austrian industrialist, that were used to pay back illegal campaign contributions Sharon used in 1999. - The scandalous collapse of Refco, the commodity futures giant, and the related collapse of BAWAG, one of Austria's largest banks (Cerberus recently bought BAWAG, BTW). - Martin Schlaff's investment in Yasser Arafat's "Oasis Casino", and that casino was tied into by the BAWAG/Refco scandals AND Ariel Sharon's right-hand-man Dov Weissman. - Martin Schlaff's and George "Macaca" Allen's involvement with the "Xybernaut" pump-and-dump stock fraud. - Martin Schlaff's apparent financier of far-Right Israeli politician Avigdor Lieberman - and finally, the potential for a crisis in Israel's democracy due to endemic corruption, and the chilling figures that could take advantage of such a crisis. Get to know your BAWAG So, let's get started with a look at the BAWAG scandal that rocked Austria's politics: Austrian Bank Scandal: When Socialists Play With Money From the desk of Chris Gillibrand on Tue, 2006-04-04 22:53 A major banking scandal is rocking the Austrian political elites – left and right. A bank owned by the Socialist trade union (which is close to the Socialist Party SPÖ, currently in opposition) loses billions in shady hedge deals while the union strike fund evaporates in the Caribbean and the bank gets implicated in a corruption case in Israel. Meanwhile the bank is financed by the European Investment Bank (EIB), and an Austrian Finance Ministry official (married to the Socialist ex-chief of the bank) ignores a crucial report and is appointed to the Executive Board of the European Central Bank (ECB). The Conservative Finance Minister claims to know nothing – after just having sold the Government-owned Post Office Savings Bank (PSK) to the socialist bank. Welcome to Austria, presently presiding the European Union council of ministers. Let me introduce! The Bank für Arbeit und Wirtschaft AG, BAWAG or in English, ‘Bank for Employment and Commerce’ was founded in 1922 by the Socialist Chancellor Karl Renner. Up until now the majority stakeholder in the Bank has been the Austrian Trades Union Federation, the ÖGB. With the repurchase of the shares of the Bayerische Landesbank in 2004, it is now wholly-owned by the ÖGB. The bank’s original intent, from which it has strayed far, was to extend cheap credits to the needy. Almost all of the members of the BAWAG Supervisory Board are fully paid up socialists and trade unionists. The two exceptions are Albert Hochleitner, the ex-CEO of Siemens Austria, and Leo Wallner, the chairman of the state-owned monopoly, Casinos Austria. Günter Weninger, chairman of the Supervisory Board, who has now been forced to resign, also has a day job as the Finance Chief of the ÖGB. He started professional life as an electrician which has given rise to suggestions in the Austrian press that he might have to return to his original trade. The Managing Board has eight members, four of whom have now resigned. The CEO, Johann Zwettler had already resigned in October 2005. He and his predecessor, Helmut Elsner, are now under police investigation. ... Make of note of Casinos Austria's CEO sitting on BAWAG's board, as it will figure in heavily once we get to Arafat's "Oasis Casino". Continuing... ... BAWAG opened up operations in the Caribbean in 1995 under the direction of Wolfgang Flöttl, the son of the then CEO, Walter Flöttl. The idea was that these investments should hedge risk. When it was made public that the son received $2 billion from BAWAG without the father seeking the formal approval of the Supervisory Board, the Caribbean business got closed after a year. The extent of Supervisory Board knowledge is still questioned. After the departure of Flöttl Senior, the business was then reopened by Flöttl’s successor, Helmut Elsner, with Supervisory Board approval after only one year. Elsner was already known as Flöttl’s “man for big business.” Living well, he enjoyed a service penthouse provided on the top of the BAWAG offices in Vienna as had his predecessor, Flöttl. Also provided with a penthouse was the head of the socialist trade union ÖGB, Fritz Verzetnitsch. This time around, Flöttl Junior invested in high-risk funds and the business clocked up a massive loss of almost €1 billion which threatened the solvency of BAWAG in 2000. The Bank was only saved by a guarantee from the ÖGB (trade union dues amount to 1% of members salaries, so they have accumulated quite a lot of money to play with). The losses themselves were systematically covered up in offshore accounts in the Caribbean and accounts at a US futures broker called REFCO. The union strike fund went walkabouts as collateral in the Caribbean and disappeared. ... There's much more interesting info on BAWAG in that article, so be sure to check it out. BAWAG, Refco, Martin Schlaff, PIPEs, and George Allen's Xybernaut scandal Before we move on to look at how BAWAG and Refco were used for money-laundering by Yasser Arafat(with a great deal of intertwined involved by Ariel Sharon's clique), we should note that BAWAG was sold to Cerberus back in December. One of its new board members includes Former Treasury Secretary John Snow. The purchase of a financial behemoth like BAWAG isn't the only major purchase Cerberus has made recently. In addition to the Bank Leumi takeover, Cerberus acquired a majority stake in GMAC last year, and is reportedly eyeing Chrysler. These kinds of mega deals pretty amazing when you consider that Cerberus, starting with $10 million in capital in 1992 started off investing the high-risk corporate debt market, moving into outright acquisitions and management of small distressed companies. The purchase of the ailing BAWAG by Cerberus is also somewhat ironic given that BAWAG, in coordination with Refco, was a significant player in the PIPE (Private Investment in Public Equity) market. The PIPE market often act as a source of last resort role for small-cap companies in need of a capital infusion. And, it turns out, one of the figures involved in with the BAWAG/Refco dealings in the PIPE Market, is the Austrian billionaire Martin Schlaff that will come up quite a bit in Ariel Sharon's scandals. One of Schlaff's companies used in the PIPE market was Balmore, a British Virgin-Islands-based hedge fund. But Balmore has some other interesting history, as an investor in Xybernaut, a tech company that had George Allen on its board from form August 1998-Dec 2000. Like just about every corporation we're looking at here, Xybernaut's managers, "improperly used substantial company funds for personal expenses" and faces multiple class-action lawsuits. For more Balmore's role in Xybernaut, let's take at look at this Sept 2006 article from the American Prospect: .... Starting in 2000, however, Xybernaut increasingly turned to a newly popular financial instrument to keep growing -- and going: so-called PIPE deals, short for “private investments in public equity.” In such deals, private investors are granted warrants or convertible debentures for stock at below-market rates in exchange for financing. All the investor has to do to make money is sell the stock. But some sleazy PIPE financiers go a step further by shorting the stock of the companies they finance, driving down share prices, diluting the shares of other investors, and even -- in a particularly egregious form of illegal short selling known as the “death spiral finance scheme” -- driving the company into bankruptcy through aggressive rounds of financing and short selling. Between March and November 2000, Xybernaut went from 1 percent to more than 15 percent owned by institutional investors who acquired their stock in the company through private deals, according to media reports. “It really rode the Internet bubble, and it was real hot stuff,” recalls Gregory Sichenzia, of Sichenzia Ross Friedman Ference LLP, a law firm that specializes in securities and PIPE transactions, which he described as an increasingly traditional financing mechanism. “It’s not the fault of the financing that the company collapsed.” Several firms that financed Xybernaut during Allen’s tenure on its board, however, have since been linked to a complicated international network of troubled financers and brokers. For example, in April 1998, Balmore Funds SA and Liechtenstein-based Austost Anstalt Schaan signed a private placement deal with Xybernaut granting the firm up to $11 million. One of their registrations of stock for sale came April 4, 2000 -- shortly after the March price peak and a period of unusually high volume trading, which was followed by yet another “going concern letter,” in mid-March, and a decline in the stock price. The signatory for Austost Anstalt Schaan was Thomas Hackl, who was from 1991 to 2002 head of treasury at BAWAG, the fourth largest Austrian bank (itself somewhat controversial for losing millions in the financing of Yasir Arafat’s casino outside Jericho). TheStreet.com has linked BAWAG to Austost and also to the hedge fund Alpha Capital Aktiengesellschaft, which invested in Xybernaut in 2001. Last year Hackl became a major figure in the collapse of Wall Street brokerage the Refco Corp., where he was executive vice president, in an accounting scandal that wiped out more than $1 billion in shareholder value.